Relative Export Prices and Firm Size in Imperfect Markets

Abstract

One of the key issues of the rising field in international trade and industrial organization¹ is the impact of trade on static efficiency. Attempts are made to relax the assumptions of perfect competition and non-increasing returns to scale, which are dominant in traditional trade theory. The new theories seem to imply that the substantial increase of foreign trade as part of the gross national product in most industrialized countries is beneficial because it has pro-competitive effects on internal market power. In the structure-performance models (e.g., Jacquemin, De Ghellinck, and Huveneers (1980)) the degree of foreign competition is taken to exert an influence on profit margins. This implies that static efficiency is sppurred by international trade.

Reprinted from Open Economies Review. 2 (1991), 295–304, by permission of Kluwer Academic Publishers. A first draft of this paper was written when the second author was visiting the University of Pennsylvania in 1987. Financial support from the Fulbright Commission and from a Heisenberg Fellowship of the German Science Foundation (DFG) to the second author is gratefully acknowledged. We thank L. Coluzzi (ISCO) for providing us with the Italian data. An earlier version of this paper was presented at the Workshop on “Empirical Studies of Strategic Trade Policy”, University of Sussex, 8–9 July 1988. We are grateful for many helpful comments of seminar participants, especially Paul Krugmann and Alan Winters. Elizabeth Reise provided further useful suggestions.